Shopping for a Home Mortgage

Are you in the market for a home mortgage? If you are rate-shopping, you’ll find that many mortgage lenders are quoting low rates to get your attention, and your business. But the initial rate you are quoted one day may not turn out to be the rate you end up with.

An advertised rate or a telephone quote is often the lowest possible rate available, assuming the client will pay upfront fees or “points” to acquire that low rate. If you are comparing rates, you should also compare total finance charges that accompany rates.

Understanding Points

A “point” is considered pre-paid interest; a fee equal to 1% of the loan amount. For example, if you pay one point for a $150,000 loan, the cost will be $1,500. If you pay two points, your upfront cost will be $3,000.

The more points you pay, the lower your rate will be. So you can buy down a mortgage rate if you have some cash to pay at closing time. With this in mind, you need to consider points when comparing interest rates.

Other Fees

You also should investigate other fees that may be involved, such as origination fees, application fees, closing costs, and any other fees associated with the loan. Also, find out what the APR is. The Annual Percentage Rate is higher than the interest rate because it is the total finance charge on the loan amount, spread out over the length of the loan.

Rate Shopping

If you feel the need to shop around for rates, be sure to call all the lenders on the same day, because rates usually change daily. Ask the rate for the same type of loan, the same term, the same amount of points to be paid, and the same lock-in period. And remember, if something sounds too good to be true, it probably is.

Good Faith Estimate

A Good Faith Estimate is a written commitment by the lender to provide a break-down of the rates and fees associated with the loan rate you have been quoted.

Questions to Ask

  • How long is the quoted rate good for?
  • When can you lock in, upon application or approval?
  • After the rate is locked-in, how long is it effective?
  • How many points are involved?
  • Is there an origination fee?
  • What are the closing costs?
  • Are there any other fees or charges involved in this loan?
  • What is the APR (Annual Percentage Rate) on this loan?
  • Could I please have a Good Faith Estimate?

Other Factors Involved

When you have a discussion with a loan officer or mortgage banker, there are other things he or she should talk with you about before a loan program and rate is determined. Here are a few of the factors that should be discussed.

  • Your current financial situation
  • Your credit history
  • Down payment amount
  • Term/ length of loan (10, 15, 30 year)
  • Number of points to be paid
  • Possibility of improving finances
  • Type of home you desire
  • Mortgage insurance
  • Your personal goals, preferences. plans and concerns

There’s more to consider than rate alone. The programs & possibilities offered by a lender are important. And many consumers feel the most important factor is finding a loan officer they trust and believe in.

By Randy Guida, Residential Mortgage Services

If you, or someone you know is thinking of buying or building a home, e-mail or give us a call were here to help.